Organizations have used risk management processes for decades as a way to anticipate and mitigate risks. This process involves identifying, monitoring, and managing possible risks to help minimize the negative consequences these risks could have on an organization. With any new project or major change that an organization takes on, it is important to ensure protection from certain risks. While it is not possible to avoid all risks, the impact of these risks can be reduced through the risk management process.
The Risk Management Process
The risk management process is made up of five primary steps. These steps are designed to help identify and track certain risks that may arise during a project. There are countless benefits that come from the risk management process, such as more efficient resource planning by pinpointing unforeseen costs, better tracking of project costs to estimate a return on investment, greater prevention of illnesses and injuries from workplace projects, increased awareness of certain legal requirements, and more flexibility when unexpected challenges occur.
1. Identifying Risks
The first step of the risk management process involves identifying possible risks that may affect the outcome of a particular project or a business as a whole. There are many different types of risks to consider, such as legal risks, market risks, environmental risks, and regulatory risks. When risks are visible within an organization, this information can be used to help minimize their effects. To identify risks within an organization, it is necessary to analyze internal history and experience. It can also be helpful to conduct external research and consult with industry professionals about possible risks that could be encountered at any point.
2. Measuring Risks
Once risks are identified, the next step is to determine the likelihood of these risks resulting in consequences for an organization. Measuring risks means developing a better understanding of the nature of the potential risks and the potential of these risks to affect organization goals and objectives. Some risks may only cause minor inconveniences that can be remedied without much disruption, while other risks can bring a business to a standstill and affect multiple departments. These are the types of risks that are important to quickly identify and prevent.
3. Examining Solutions
Identifying and measuring the possible risks an organization faces are just the first steps. Once the list of risks is prioritized, an organization can begin to find solutions. However, not all solutions may be viable. When determining if a solution will work for an organization, its effectiveness and affordability will need to be assessed. Companies should choose to either accept, avoid, control, or transfer the risks they face. By accepting a risk, organizations become subject to the possible consequences. Implementing risk control can reduce its impact. The risk of negative outcomes to a third party can also be reduced by certain actions, such as purchasing insurance.
4. Implementing Solutions
The next step involves putting what has been learned into action. Once risks are ranked according to severity, a plan of control can be implemented to modify these risks to an acceptable level. This can be achieved by creating a risk mitigation strategy or contingency plan. To achieve this plan, the proper resources must be acquired and approved by senior management. The solution should be implemented across all departments with participation from other employees to increase the odds of a successful outcome.
5. Monitoring Results
The final step of the risk management process involves monitoring results. It is important to remember that not all risks can be eliminated, but potential risks can be tracked to best minimize their influence on an organization. Monitoring systems should be continuously reviewed by employees to watch for risk factors that are close to occurring. After close monitoring, it can be determined whether a plan is working or if changes or updates are needed. If a strategy that was implemented is not delivering the desired results, it may be necessary to scrap it and start over.
Learn More About Risk Management
Organizations with concerns about risk preparedness would benefit from the risk management process. Using the risk management process, a business will have the tools necessary to identify significant and less significant risks, document these risks, notify management of their severity, and take action to reduce the effect that these risks will have on the organization. To learn more about the risk management process or for assistance with risk management, contact the team at Hartman Executive Advisors.